Comment on AP survey: Fed's outlook correct but not solution

AP survey: Fed's outlook correct but not solution

Yet the latest Associated Press survey of economists finds that most fear the Fed will wait too long to raise interest rates and thereby risk stoking inflation or creating asset bubbles. In follow-up interviews, several said they feared that by waiting too long to raise rates, the Fed could ignite inflation or may already be feeding speculative bubbles in assets such as stocks or high-yield bonds. "Yellen's much more concerned about the Fed's employment mandate than inflation," said David Shulman, an economist at UCLA's Anderson School of Management, referring to the Fed's drive to lower unemployment. Lynn Reaser, a professor at Point Loma Nazarene University, agrees with Yellen that if the economy were nearing full health, workers' pay would be rising faster, fewer people would be unemployed for more than six months and many part-timers who want full-time jobs would manage to find them. The idea would be to keep rates low, boost stock prices and shrink the euro's value, which would make European exports more affordable. Flat wages are "a limiting factor for consumer spending growth and a major restraint for the housing recovery," said Scott Brown, chief economist at financial services firm Raymond James. The Fed thinks unemployment at that level would likely enable workers to demand higher pay and therefore lift inflation above the Fed's long-range target. In a speech Friday at the Fed's annual conference in Jackson Hole, Wyoming, Yellen stressed that the Great Recession upended traditional measures of the job market, such as the unemployment rate and wage gains.

 

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